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Thursday, March 26, 2009

German Consumer Confidence Falls In March

German consumer confidence declined for the first time in seven months as workers worried about keeping their jobs amid the worst recession since World War II. GfK AG’s confidence index for April, based on a survey of about 2,000 people, declined to 2.4, the Nuremberg-based market- research company said in a statement today. March’s result was revised down to 2.5 from 2.6.

Economic expectations: slight decline

After an increase in February, economic expectations in March this year have decreased by 4.9 points, a drop that is almost on a par with the gains of the previous month. The indicator currently stands at -32.8 points.

At present, consumers are still seeing little reason to abandon their pessimism as regards the economy, and fear of job losses is also coming increasingly to the fore. For the time being, this is still overshadowing the positive effect of the Economic Stimulus Package II on the domestic economy.

Income expectations: minimal losses

After the extremely positive development in income expectations, which rose by almost 10 points in February, the indicator remains virtually stable for March. Income expectations have decreased only minimally by 0.4 points, to currently stand at -11.4 points.

The continuing low rate of inflation is having a positive effect here, and falling food prices and low energy prices are also strengthening consumer purchasing power. Even discount retailers are currently engaged in price wars, enticing consumers with offers and sales. The pension increase agreed by legislators for summer 2009 was only made public after the survey had been completed, and therefore did not affect the results. However, this boost for pensioners is likely to have a stabilizing effect on income expectations in the future.

Propensity to buy: plateauing at a good level

Propensity to buy is at a positive level. The indicator has almost completely maintained its very good level in March this year, recording only comparatively modest losses of 0.7 points. Currently, propensity to buy stands at 13.9 points, which is still 24 points above the level recorded at the same time in the previous year.

The low rate of inflation is still probably one of the most important reasons why the propensity to buy of German consumers is plateauing at this very good level. Financial incentives, which the government is creating with its Economic Stimulus Package II and the retail trade is supplementing with its own promotions, are also having an effect. For example, many car manufacturers are creating buying incentives by offering further concessions to complement the government’s bonus for scrapping old cars. In addition, many retailers from the consumer electronics and household appliances sectors are copying the principle of the car scrapping bonus and applying it to their own products.

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